The Sacrament of Penance, also called "Reconciliation" or "Confession", is one of the means by which the endless power of the sacrifice of Jesus on the Cross to forgive sins is distributed to the members of the Church.  Sins are forgiven and the indwelling of the Holy Spirit is first made present through the Sacrament of Baptism.  Because Baptism cannot be repeated, a second sacrament is needed to absolve the sins of those who deface their baptismal dignity. With the power of "the Son of Man [who] has the authority to forgive sins" (Matthew 9: 6), the Church exercises the authority to bind and loose in the name and by the direction of the Lord himself (see Matthew 9:8, 18:18, John 20:21ff, 2 Corinthians 5:18).

Through the ages, the particular form of the Sacrament of Penance has developed according to the needs of the times.  In the early Church, the Sacrament was celebrated one in a lifetime with a public confession of sin and guilt followed by the reception and reintegration of penitents by the bishop after perhaps months and years of penance.  Today, the Sacrament is practiced in a way to embrace the struggles of Christians in day-to-day living, as they turn from their sin and trust in God for forgiveness and mercy.

There are six main elements of the Sacrament of Reconciliation.  The first is prayerful preparation.  As a penitent becomes aware of sin, he is encouraged to ask God privately for the power to turn from the sin, the grace to confess the sin, and the trust to receive God's healing mercy.  Penitents do this through a practice called an Examination of Conscience.

Next, as the penitent comes before a priest, either in a face-to-face meeting or through a screen to conceal the penitent's identity, the penitent makes a fullconfession of sin that he or she is aware of.  This action is of great value to the penitent because it 1) requires the penitent to honestly face up to the seriousness of his or her failure to live up to God's law, it 2) helps the penitent to realize the social dimension of his or her sin, in that through sin, all of creation is impacted, and 3) it aids the penitent in resolving to sin no more, as he or she receives the advice and counsel of a priest.  Penitents must confess all "mortal sin", which is the participation in a serious moral evil with full knowledge and consent of will.  (If any of these factors are missing, an action is considered a "venial" - less serious - sin.)

The priest will then offer words of encouragement for the penitent in his or her struggle against sin, and then prescribe a penance, which is a 'medicinal' (and not punitive) exercise for the penetient--a series of prayers, good works, or sacrifices--which will encourage the penitent to avoid sin in the future.  Obviously these actions cannot "earn" God's forgiveness, but they are signs of our willingness to cooperate with God's grace and to renew our intention to avoid sin in the future.  Next the penitent expresses his or her sorrow to the priest through a prayer called an Act of Contrition, after which the priest will pray the prayer of Absolution, which releases the penitent from his or her sins into the eternal mercy of God.  After leaving the priest, the penitent is instructed to say his or her penance and to offer thanksgiving for the gift of God's forgiveness.

A worksheet has been prepared describing the practice of going to the Sacrament of Penance, complete with some suggested items for a good examination of conscience.

Catholics are urged to receive the Sacrament of Penance whenever they are conscious of mortal sin or at least once a year, whichever is sooner. The sacrament is available on Saturday evenings at 3:30 pm in the church, or at any other time by appointment.

External Links:

Misericordia Dei: Apostolic Letter on the Sacrament of Penance.  John Paul II (via Vatican)

The Forgiveness of Sins (via Catholic Answers)

The Church Fathers on Confession (via Catholic Answers)

The Physician of the Soul (via Catholic Answers)

Several versions of the Act of Contrition and an article on Absolution (via Wikipedia)